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A Canadian diamond play with discovery, development potential

by James Kwantes
Resource Opportunities

North Arrow Minerals is one of three Resource Opportunities sponsors.

The November 1991 discovery of diamonds in the Northwest Territories by Chuck Fipke and Stu Blusson put Canada on the global diamond map. It also triggered one of the largest staking rushes in the world, as hundreds of companies hurried north to find treasure.

A few years later, many had retreated to warmer climes. One company that remained in the hunt was Gren Thomas’s Aber Resources, with a large land package staked by Thomas and partners at Lac de Gras near the Fipke find. In the spring of 1994, an Aber exploration crew led by Thomas’s geologist daughter, Eira Thomas, raced the spring melt to drill through the ice in search of kimberlite — the rock that sometimes hosts valuable diamonds.

It was a longshot. Since the Fipke find, the great Canadian diamond hunt had virtually ground to a halt — despite the millions of dollars spent in search of the glittery stones. But the drill core from that final spring hole had a two-carat diamond embedded in it. The Diavik discovery meant it was game on for Aber — and Canada’s nascent diamond industry.

DIAMOND POWER PLAYER
A quarter century after that fateful hole was punched through melting ice, Canada punches above its weight in the world of diamonds. Measured by value, the country is the third largest producer of diamonds by value globally. And the valuable diamonds that continue to be unearthed at the Diavik mine discovered by Aber are a big reason why.

The discovery unleashed a wave of shareholder value. The shares of Aber and its successor companies went from pennies to more than $50 as the quality of the diamonds and the asset became known. Dominion Diamond Corp., as Aber is now known and which owns the Ekati mine and 40% of Diavik, is Canada’s premiere diamond company. Diavik is expected to produce about 7.4 million carats this year, making it among the world’s largest diamond operations.

The team behind the Diavik discovery has also created a fair amount of shareholder value in the years since, led by Eira Thomas. She has co-founded two diamond players, Stornoway Diamond Corp. and Lucara Diamond Corp., and remains a director of the latter Lundin Group company. Her most recent gig, as CEO of Kaminak Gold, ended rather well — Goldcorp bought the company for $520 million last year.

A cut fancy orangey yellow diamond from Naujaat

Thomas is also an advisor to North Arrow Minerals (NAR-V), a cashed-up junior company at the forefront of Canadian diamond exploration. Aber’s Gren Thomas is North Arrow’s chairman and the CEO is Ken Armstrong, a former Aber and Rio Tinto geologist. North Arrow recently raised $5 million to explore its portfolio of projects and a drill program is underway at its advanced-stage Naujaat project, which hosts a population of valuable fancy orangey yellow diamonds.

In a space with few new discoveries or development projects, Canada is home to two of the world’s new diamond mines. Stornoway’s Renard mine in Quebec and Gahcho Kue, a De Beers-Mountain Province joint venture in the Northwest Territories, have both recently begun commercial production.

Globally, the diamond industry has faced headwinds, including India’s demonetization and choppy rough stone prices. But diamonds remain a money maker for some of the world’s largest mining companies, including Rio Tinto (60% owner of Diavik) and Anglo American. Incoming Rio boss Jean-Sebastien Jacques identified diamonds as a “priority area” last year in a Bloomberg interview: “I would love to have more diamonds, to be very explicit.” The company recently backed up those words by signing a three-year, $18.5-million option on Shore Gold’s Star-Orion South diamond project in northern Saskatchewan.

And Anglo’s De Beers division remains a reliable profit generator. In 2016, rough diamond sales surged for both Anglo American (up 36%) and Russian producer Alrosa (up 26%), according to The Diamond Loupe. A recent hostile takeover bid for Dominion Diamond reflects the demand for well-run diamond mines, which are powerful profit machines.

EXPLORATION DEFICIT
The picture is less promising on the exploration front. Budgets dried up during the mining slump that began in 2011, and little grassroots exploration work is being done. It’s particularly problematic for supply because diamond mines take longer to discover, evaluate and build pharm. The new Canadian mines will help fill the gap, but it won’t be enough. Economic diamond discoveries have simply not kept pace with mine depletion, globally.

“There are definitely a lack of new projects, at least new projects that are close to infrastructure,” said Paul Zimnisky, a New York-based independent diamond analyst. “There really is not much at all in the global diamond production pipeline.”

Economic, world-class diamond projects are few and far between, and most exploration companies looking for them have failed, Zimnisky explained. That has resulted in wariness and declining interest among investors: “In general, shareholders have not done well in diamonds.”

The looming supply deficit is particularly acute for rare coloured diamonds, which fetch higher prices. Australia’s Ellendale mine produced an estimated 50% of the world’s fancy yellow diamonds before closing in 2015. The Argyle mine, also in Australia, is one of the world’s biggest mines and a source of valuable coloured diamonds, including extremely rare pinks. It, too, is slated to close in the coming years, after decades of production.

North Arrow’s Naujaat could help fill the void. The project hosts a population of fancy orangey yellow diamonds that are more valuable because of their rarity. Naujaat is on tidewater, which dramatically reduces costs, and hosts a very large diamondiferous kimberlite, Q1-4, that outcrops on surface.

It’s the focus of this year’s $3.2-million program, which will see North Arrow drill 4,500 metres and collect a 200-tonne mini bulk sample. The goal is to extend the Inferred resource to a depth of at least 300 kilometres below surface and better define the diamond population. The sample will be shipped south in late August and processed in the fall.

“There is excellent potential to extend the Q1-4 kimberlite at depth, beyond the reach of past drilling efforts,” said North Arrow CEO Ken Armstrong. “It’s the first drilling in more than 12 years. The work will help us confirm and update the size of Q1-4 and improve our understanding of the deposit’s internal geology and diamond distribution.”

In 2014 and 2015, North Arrow collected a small bulk sample at Naujaat (formerly known as Qilalugaq) with the goal of gauging diamond values. But the carat values on the small 384-carat package came in significantly below expectations. North Arrow shares were relegated to the market penalty box and the company has been largely under the radar since, despite important background work that set the stage for this year’s program.

RISK AND OPPORTUNITY
Contrarian investing and the ability to time cycles can lead to fortunes in the junior mining sector. Vancouver investor Ross Beaty has proven it, time and again. In the early 2000s, with copper trading for under US$1 a pound, his team assembled a portfolio of unwanted copper assets in a bear market. He developed and sold those projects during bull markets, turning $170 million in invested capital into shareholder returns of $1.87 billion. His latest win was a large bear-market investment in Kaminak Gold, later bought out by Goldcorp.

Beaty’s latest contrarian bet is on North Arrow, through a $2-million investment that was part of the recent $5-million private placement financing. Other investors included the New York-based Electrum Strategic Opportunities Fund ($2 million) and company management and directors. The money will fund an aggressive program at Naujaat including drilling and a bulk sample, as well as exploration at North Arrow’s Mel, Loki and Pikoo projects.

North Arrow also has exposure to drilling through the LDG (Lac de Gras) joint venture with Dominion Diamond Corp. That project borders on the mineral leases where Diavik is located. Ekati is 40 kilometres to the northwest. Dominion plans to drill several targets later this summer as part of a $2.8-million exploration program. North Arrow will have a 30% interest in the JV.

With a target on its back, Dominion is highly motivated to enhance shareholder value. And that extends beyond mine operations to exploration and new discoveries. In May, Dominion announced a “renewed strategic focus on exploration” and a $50-million, five-year exploration budget.

A FANCY EDGE

As for Naujaat, North Arrow is revisiting the project after a polishing exercise yielded fancy yellow diamonds that turned some heads in the industry. Several were certified “fancy vivid” diamonds, a coveted designation in the coloured diamond world. The quality of the polished stones suggests the fancy orangey yellow diamonds at Naujaat are considerably more valuable than the June 2015 valuation of the roughs indicated.

The primary conclusion of the diamond evaluators was that the 384-carat parcel of Naujaat diamonds was too small to properly evaluate. North Arrow plans to remedy that, in part, by collecting a 200-tonne bulk sample that should yield another 80 to 100 carats. The sample will be taken from the kimberlite’s highest-grade zone, A61. Lab results are expected in early 2018.

Another complicating factor at Naujaat is the presence of two distinct diamond populations of different ages, including a population of rare fancy yellow diamonds. It’s a consideration that was not factored into the prior carat valuation. It will be next time. Diamonds are a rarity play, and diamonds that occur less frequently — such as coloured diamonds and large diamonds — are more valuable. Yellow diamonds made up only 9% of the 2015 Naujaat sample by stone count, but more than 21% by carat weight.

The drilling at Naujaat is targeting kimberlite between 200 and 300 metres in order to bring material designated target for future exploration (TFFE) into the Inferred category. That drilling, plus the mini bulk sample, should help North Arrow better evaluate the diamond deposit on the path to a future Preliminary Economic Assessment. The Q1-4 kimberlite has a horseshoe shape that makes it amenable to open-pit mining and a low strip ratio. A larger bulk sample is planned for 2018.

COLOURED CARATS
Fancy yellow diamonds were thrust into the spotlight earlier this month when Dominion unveiled the striking 30.54-carat Arctic Sun, a fancy vivid yellow diamond cut from a 65.93-carat stone unearthed at Ekati. Dominion also played up coloured diamonds in their latest corporate presentation — specifically, the sweetener effect of high-value fancy yellow and orange diamonds at Misery.

Dominion Diamond Corp.’s 30.54-carat Arctic Sun fancy yellow

The potential emergence of Canadian coloured diamonds could help solidify Canada’s position on the world diamond stage, according to analyst Zimnisky. On the branding and marketing side, Canadian diamonds continue to have strong appeal because of their high quality and ethical sourcing.

And the two recent Canadian mine openings are a bright spot for the global industry, despite early growing pains at both Gahcho Kue (lower-than-expected values) and Renard (breakage), he pointed out.

“There is absolutely an opportunity to sell Canadian diamonds at a premium, especially in North America,” Zimnisky said. The United States remains the world’s largest diamond market, despite the growth in demand from China and India.

Important hurdles remain before any mine is built at Naujaat, but the strength of North Arrow’s management team bodes well for success, according to Zimnisky.

“North Arrow is looking for something world-class and it’s high-risk, high-reward,” said Zimnisky, who has seen the company’s cut and polished fancy yellow diamonds: “They’re beautiful.”

The appetite for fancy yellow and other coloured diamonds remains strong, despite the closure or pending closure of two of the mines that produce many of them. Last year a De Beers store opened on Madison Avenue in New York, Zimnisky said, and the feature diamond on opening day was a very large fancy yellow of more than 100 carats.

DISCOVERY POTENTIAL
Further north of Naujaat on Nunavut’s Melville Peninsula is another North Arrow project with a good shot at a kimberlite discovery. At the Mel property, 210 kilometres north of Naujaat, North Arrow geologists have narrowed down and defined three kimberlite indicator mineral (KIM) trains through systematic soil sampling over several seasons. Last year’s till sampling defined where the KIM train is cut off, suggesting the bedrock kimberlite source is nearby.

The discovery of a new kimberlite field this season is possible, since kimberlites in the region outcrop at surface. “It’s a first look, but there’s potential for discovery without drilling,” says CEO Ken Armstrong.

As for the Lac de Gras joint venture, the US$1.1-billion hostile takeover bid for Dominion unveiled by the private Washington Corp. earlier this year may work in North Arrow’s favour. In addition to spurring a stock surge, the bid forced the diamond miner to crystallize its focus on creating shareholder value. And a key strategy for Dominion, with its two aging mines, is a renewed exploration push.

Finding new diamondiferous kimberlites in proximity to its existing operations would be a big boost for Dominion. One of its best shots is through the joint venture with North Arrow, which covers 147,200 hectares south of Ekati and Diavik. Dominion is spending $2.8 million on the project this season, including a planned drill program in the fall. North Arrow is well-positioned to capture the value of any Dominion kimberlite discoveries made.

North Arrow also plans to drill two or three promising kimberlite targets at its nearby 100% owned Loki project, dovetailing with the completion of the LDG drilling. The company has received a $170,000 grant from the Northwest Territories government to drill Loki. North Arrow will also conduct till sampling in the fall at Pikoo, its Saskatchewan diamond discovery, in advance of a potential early 2018 drill program.

Disclosure: Author owns shares of North Arrow Minerals. North Arrow is one of three company sponsors of Resource Opportunities, helping keep subscription prices low for the subscriber-supported newsletter. North Arrow Minerals is a high-risk junior exploration company. This article is for informational purposes only and all investors need to do their own research and due diligence.

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Fipke, Ulansky take uranium hunt outside the Basin

Northern Uranium CEO Chad Ulansky (left) and geological consultant and investor Chuck Fipke, in Kelowna, British Columbia. Credit: Northern Uranium
Northern Uranium CEO Chad Ulansky (left) and geological consultant and investor Chuck Fipke, in Kelowna, British Columbia. Photo: Northern Uranium

Chad Ulansky cut his teeth on Ekati, Canada’s first diamond discovery, but it’s uranium that he’s hunting for now in Canada’s frozen North.

The Kelowna geologist is president and CEO of Northern Uranium (TSXV:UNO), which is exploring in northwestern Manitoba just beyond the eastern edge of the prolific Athabasca Basin.

Ulansky got his start as a geologist with Chuck Fipke’s Dia Met Minerals, which discovered Ekati, Canada’s first diamond mine, at Lac de Gras in 1991. The discovery by Fipke and Dia Met partner Stu Blusson, which came after years of systematic exploration, rocked the global diamond industry and sparked the biggest staking rush since the discovery of gold in the Klondike.

The Ekati discovery also kick-started the Canadian diamond industry and upset the De Beers cartel. Canada is now the world’s third largest producer of diamonds by value, with four mines and another two under construction.

Last year, Fipke sold his 10% interest in Ekati for $67 million US to Dominion Diamond Corp., which owns 89% of the mine (Blusson retains a 10% interest).

The Fipke-Ulansky partnership began when Ulansky was just a teenager. An avid outdoorsman from a young age, Ulansky met Fipke when the geologist attended a presentation Ulansky gave to a Kelowna scout troop, and the two hit it off. Fipke told him he would call him at the end of the school year.

Sure enough, Fipke phoned in June and offered Ulansky a summer job, a gig that turned into a continuing, decades-long partnership.

Ulansky continued working for Dia Met until its purchase by BHP in 2001.

Along the way, he obtained a bachelor’s degree in geology at the University of Cape Town in South Africa, where he studied under renowned diamond geologist Dr. John Gurney.

Ulansky retained his love of the outdoors while living in Cape Town. In 2001, he set a record for the Three Peaks Challenge, a 50-km mountain running trail that involves ascents of the three major peaks above Cape Town — Devil’s Peak, Table Mountain and Lion’s Head.

URANIUM HUNT

He’s climbing a peak of a different sort as president and CEO of Northern Uranium, which is searching for an economic uranium deposit just outside the Athabasca Basin — home to dozens of competitors.

Northern Uranium has earned a 50% option on the Maguire Lake property from CanAlaska Uranium. The property borders on Saskatchewan and is located along the extension of the Mudjatik Wollaston tectonic zone, which runs southwest-northeast near the Manitoba border. The zone hosts many of the Basin’s major uranium deposits, including Cameco’s Cigar Lake, McArthur River and Key Lake.

Northern Uranium licenses on mine trend. Source: Corporate presentation
Northern Uranium licenses on mine trend. Source: Corporate presentation

Cigar Lake and McArthur River both have uranium grades above 20%, and Ulansky is out to prove that high-grade uranium exists on Northern Uranium’s property as well.

His thesis is that extensive glaciation stripped off the sandstone and sediments and left basement rock exposed, hosting shallow uranium mineralization.

There is some early evidence supporting his thesis. Prospecting work done by CanAlaska uncovered a boulder that contained 66% uranium oxide, and in situ grab samples have contained grades up to 9% U308.

Finding dozens of mineralized boulders in a small area is highly uncommon, Ulansky says, and Northern Uranium is now searching for the bedrock source of that mineralization.

“What we need geologically is all that uranium in trace quantities across huge volumes of rocks to be picked up and brought to one spot and concentrated there,” Ulansky says, talking about geological changes that occur over millions of years. “The mechanism for that is percolating fluids, waters that circulate through bedrock. When these fluids are slightly oxidizing, they scavenge uranium, they move thru cracks, fissures and preferentially strip out the uranium and carry it with them. The fluids migrate through rocks, when they get to a fault zone that’s permeable, they’ll rise to the surface and cool. Solubility drops and over millions of years, fluids will circulate and uranium will start to precipitate out.”

Northern Uranium has expanded on CanAlaska’s program using various methods — including electromagnetic, magnetic, ground gravity and radon surveys — to narrow down drill targets for a “focused” $1.5-million exploration program.

Airborne magnetics has identified faults that could provide an important pathway for mineralizing fluids, while electromagnetics has identified a 35-kilometre conductor path where precipitation of uranium mineralization is more likely.

RADON RESULTS STELLAR

Radon surveys — which are not being used by all early-stage uranium explorers in the Basin — are among the most useful tools in the hunt for uranium mineralization, Ulansky says.

Just as Fipke used diamond indicator minerals to find Ekati, Northern Uranium is using radon surveys to detect the presence of uranium mineralization.

“The silver bullet for uranium is radon. It’s a gas, highly mobile, very short half-life, that percolates up from uranium mineralization at depth,” Ulansky says.

“Imagine if you were exploring for gold and it uniquely gave off something called gold gas. You’d just go look for the gold gas.”

Radonex, the same company that completed radon surveys for Fission’s high-grade Patterson Lake South project did lake-based radon work for Northern Uranium, and the results were comparable to PLS’s, Ulansky says. Results from the land-based radon surveys were also strong.

However, the challenging part is that the radon signature is much larger than the uranium mineralization associated with it.

“We are very, very strong believers in the fact that there is high-grade uranium mineralization there, it’s just a matter of figuring out where it is,” Ulansky says. “I firmly believe there’s a major discovery to be found, and it’s just a matter of drill testing to find it.”

Watch: Mr. Fipke’s Canadian Mining Hall of Fame 2013 Induction Video

TARGET ZONE IDENTIFIED

Ulansky’s team has zeroed in on an area 3 kilometres wide by 10 kilometres long, centred over Maguire Lake. The target zone is northeast and up ice of the high-grade boulder discovered by CanAlaska.

“The ice direction is from northeast down to the southwest, so it certainly hasn’t come from the Athabasca, which is down-ice,” Ulansky says. “That’s telling us that up-ice there is some exceptionally rich mineralization to be found.”

During the 3 coldest months of winter, crews have been testing priority targets underneath the lake.

Early drilling has hit some uranium mineralization but not in economic quantities, Ulansky says.

Drill results are expected in the coming months, and with $500,000 in the treasury, Northern Uranium will need to raise money to fund more drilling.

Fipke is a special advisor and major shareholder.

“All the geology to date looks exceptionally promising, it’s just a matter of raising the funds to continue drilling,” Ulansky says.

Northern Uranium can earn up to an 80% interest in the project by spending an additional $8.4 million in two tranches and issuing 7.5 million shares and 3.75 million warrants over four years.

Ulansky remains a key player in Fipke’s group of companies; he’s president of Cantex Mine Development and president and CEO of Metalex Ventures. The two companies share Kelowna office space with Northern Uranium, helping keep the burn rate down to $10,000 a month.

The group of companies also own the drill rigs.

The radon and boulder indicators that Northern Uranium has are promising, but now comes the hard part: finding high-grade uranium mineralization. Ulansky compared the exploration effort to trying to break a plate at the bottom of a swimming pool blindfolded, with a pool cue. You know the plate’s there, but to smash it, you have to find it.

If you’re going for that type of swim, the partners you want are Chad Ulansky and Chuck Fipke.

To receive drilling news directly from the company, email info@northernuranium.com with the subject line, “Please add me to your email list.” That or call the company’s Kelowna office at 1.250.448.4110 for more information.

 

Author has a financial interest in Northern Uranium. The article is not intended to be investment or professional advice of any kind. Readers are strongly encouraged to independently verify all information contained in the article, as it may contain errors. Please see Terms of Use and Privacy Policy for important disclosures. Some of the statements contained herein may be forward-looking statements which involve known and unknown risks and uncertainties. Without limitation, statements regarding potential mineralization and resources, exploration results, and future plans and objectives of Northern Uranium are forward looking statements that involve various risks. The following are important factors that could cause Northern Uranium’s actual results to differ materially from those expressed or implied by such forward looking statements: changes in the world wide price of mineral commodities, general market conditions, risks inherent in mineral exploration, risks associated with development, construction and mining operations, the uncertainty of future profitability and the uncertainty of access to additional capital. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events may differ materially from those anticipated in such statements. Northern Uranium undertakes no obligation to update such forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on such forward-looking statements.